Project funding is tight, is a "shutdown wave" hitting the cryptocurrency industry?

Written by: Sharon, BlockBeats

Edited by: Jack, BlockBeats

Despite the recent excitement of the Token2049 conference, the current state of the crypto industry seems to be mired in a quagmire, unable to shake off the overall gloomy sentiment.

On September 21, the DeFi project Fuji Finance announced it would cease operations, allowing users to withdraw funds through the user interface until 2024. This marks the fourth project to announce its shutdown in September alone, following the DeFi project Gro Protocol on September 20, the DeFi and NFT trading bot None Trading on September 20, and the NFT platform Voice founded by EOS creator BM.

According to incomplete calculations by BlockBeats, the number of projects, exchanges, and communities in the cryptocurrency industry that ceased operations was 9 in 2021, 17 in 2022, and has risen to 27 in 2023. Moreover, in 2023, the rate of project shutdowns has accelerated, increasing from an average of 1 per month to a peak of 5 per month. Behind these events, every participant in the crypto industry, from community operations to project financing, has felt the chill of the bear market.

Increasing Frequency of Project Shutdowns

Fuji Finance, known as the "first DeFi aggregator" on Ethereum, is now shutting down, similar to Gro Protocol, simply because it has run out of money.

In its press release, it stated, "Since February of this year, the Fuji team has been raising funds to continue developing the protocol and building the future of cross-chain DeFi operations. We have been unable to find a product suitable for the market. As our funds continue to dwindle, we have decided to begin shutting down the company and ending operations, and there are currently no signs of an end to our fundraising efforts."

On September 20, Gro Protocol also stated, "Despite the incredible dedication, time, and resources invested by all Gro DAO contributors and members over the past three years, Gro DAO finds itself facing significant challenges. The tough market, poor performance of Gro Protocol, and key deviations in Groda Pod have put Gro DAO at a critical juncture, necessitating a decision about its future."

This decision was to cease operations and dissolve, which received 70.95% support within the community and will focus on dissolving the DAO and stopping operations of Gro Protocol from October 3 to January 3, with a budget of 180,000 USDC, allowing users to withdraw assets from GVT, PWRD, and Pools at any time (indefinitely).

The Gro DAO official website elaborated on the reasons for the project's shutdown: first, the performance of the protocol— the flagship product of the DAO, the risk and return tiered Gro protocol, has performed poorly for a long time; second, the departure of key management personnel ("leadership vacuum"), coupled with the failure of other product Pods (Panda), has triggered broader survival issues for the DAO.

"The departure of four key figures from Gro DAO, along with contributors and community disengagement," has also accelerated the project's dissolution process. In response, there were voices of skepticism within the community questioning the allocation of funds in their proposal: "Why pay two people $170,000 to simplify the product?" On the other hand, some questioned the allocation of time and budget: "This is the worst time and budget reduction proposal I've ever seen."

Looking back, the NFT social platform Voice, founded by EOS creator BM, announced its shutdown on September 14, citing "high uncertainty in the cryptocurrency and NFT markets." Launched in June 2019 and backed by Block.one, Voice was initially a decentralized social platform aimed at competing with Twitter (X), Facebook, etc., with BM claiming it would be "an application that changes the industry landscape."

At that time, Voice could be said to have been born with a silver spoon. To ensure Voice's smooth launch and better promotion, Block.one paid a $24 million fine to the SEC to prepare for compliance, and BM spent $30 million to purchase the domain Voice.com, setting the record for the largest publicly disclosed domain sale in history, which BM considered "expensive but valuable."

Despite high expectations, user experience on Voice was poor, and community response was tepid. In May 2021, Block.one announced an upgrade and transformation of Voice into an NFT-based creation and social platform for emerging creators, but it too could not escape the fate of shutdown.

Additionally, the Web3 creator platform Nifty, which announced its shutdown on August 3, also cited "insufficient funds" as the reason for its closure. It stated on social media, "Earlier this year, considering our limited resources in a challenging market, we turned to develop a platform for Web3 creators. Since then, we have been committed to developing new products and seeking opportunities to secure the funding needed for continued development. Unfortunately, despite our best efforts, the investment opportunities we pursued have not been successful, and we now find ourselves at an impasse."

It is evident that most projects announcing shutdowns in the past month are due to insufficient funds, which is not unrelated to the current bear market. Recently, the PolkaWorld community also paused operations due to issues with fund allocation in proposals and the new governance framework.

These projects emerged during the bull market but are exiting during the bear market. Behind the chaos lies the root cause of money.

Have They Burned Through All Their Funds?

Jocy, founder of China's top crypto venture capital firm IOSG, recently wrote that for many teams, if the bear market does not end, this (referring to Token2049) will be their last public appearance.

"LPs continue to support early-stage VCs growing within the industry, VCs keep backing emerging track founding teams, and teams are constantly expanding and growing in scale, seemingly everything is moving in a better direction. But the reality is quite the opposite; for many teams, this Token2049 may be their last hope for funding. If the bear market does not end, this could be their last brand exposure, as most early teams have expanded over the past two years, leaving their runway nearly depleted. Some teams have a very high burn rate and, in such a market, are left with only 5 to 10 months of runway, even going so far as to buy expensive tickets/sponsorships for Token2049 to pitch to more potential investors."

This also points out that perhaps the recent announcements of multiple project shutdowns are due to the funds they initially raised being completely burned through. From the recent financing history of several projects, this seems to be the case. During the previous bull market, projects easily secured funding, and VCs were generous.

In March 2021, Gro Protocol announced it had completed a $7.1 million seed round, reportedly led by Galaxy Digital and Framework Ventures, with follow-on investments from Variant, Northzone, Nascent, and others; in July 2021, Nifty's announced it had completed a $10 million seed round, with participation from Polychain Capital, Ethereal Ventures, Coinbase Ventures, A&T Capital, and others; Voice even secured $150 million in funding from Block.one.

2021 was indeed during the bull market, and now, two years later, it may be as Jocy said, the funds once raised have now been burned through. However, now in a bear market, these projects face greater obstacles in raising funds, which has become one of the reasons for their shutdown and dissolution. But perhaps, as projects like Nifty and Fuji mentioned in their announcements, they have unwavering confidence in the industry's development, yet the current situation and conditions indeed present considerable "uncertainty." Perhaps in the next cycle, these projects will rise again and welcome a new summer.